Sukanya Samriddhi Yojana: Is the 8.2% Interest Rate Enough for Your Daughter's Future?

The Sukanya Samriddhi Yojana (SSY) is a government-backed savings scheme that provides an 8.2% tax-free interest rate for girl children, intending to help fund their future education or marriage expenses. While it's a secure, fixed-income investment, some financial experts suggest that combining it with equity investments may generate better returns that outpace inflation over the scheme's 21-year maturity period.

But with its attractive interest rate and tax advantages, is the Sukanya Samriddhi Yojana the obvious and best savings option for your daughter? Let's explore the key features of the SSY scheme and compare it to other investment alternatives, such as the Public Provident Fund (PPF) and mutual funds.

SSY: Eligibility and Key Features

To be eligible for the Sukanya Samriddhi Yojana, the account holder must be an Indian resident. A parent or legal guardian can open the account for a girl child under the age of 10.

A family can open SSY accounts for a maximum of two daughters. That said, the reality is a bit more complicated. an exception is made for twins or triplets born in the first or second birth order; in these cases, more than two accounts are permitted if supported by an affidavit and birth certificates. This exception does not apply if the first birth results in more than one surviving girl child. Only one account is allowed per girl child under this scheme.

The guardian operates the account until the girl reaches 18 years of age. After turning 18, the girl can operate the account herself upon submitting the required documents.

The account can be opened with a minimum initial deposit of ₹250. Subsequently, a minimum of ₹250 must be deposited each financial year. The maximum deposit limit is ₹1.5 lakh per year. Deposits must be in multiples of ₹50 and can be made as a lump sum or in installments.

Deposits can be made for 15 years from the account opening date.

If the minimum deposit of ₹250 is not made in a financial year, the account becomes defaulted. It can be regularized within the 15-year deposit period by paying a penalty of ₹50 for each year of default, along with the minimum required deposits for those years.

Deposits made into the account are eligible for tax deductions under Section 80C of the Income Tax Act, under the old income tax regime. Deposits can be made in cash or by cheque at a post office, or online through NEFT/RTGS or the India Post Payment Bank app.

Maturity, Withdrawals, and Premature Closure

The SSY account matures 21 years from the date it was opened.

That said, the reality is a bit more complicated. the account can be closed earlier if the account holder gets married, provided a written declaration is submitted on non-judicial stamp paper and age proof confirms she is at least 18 years old at the time of marriage. Early closure for marriage is permitted only between one month before and three months after the marriage date.

For education purposes, up to 50% of the account balance (as of the end of the previous financial year) can be withdrawn. This withdrawal is allowed after the girl turns 18 or passes Class 10, whichever occurs earlier.

The amount can be withdrawn in a lump sum or in installments, with a maximum of one withdrawal per year for up to five years. The withdrawal amount must align with the actual education expenses, supported by admission letters or fee receipts from the educational institution.

In the event of the account holder's death, the account will be closed immediately after submitting Form-2 and the death certificate. The full balance, along with interest accrued up to the date of death, will be paid to the guardian. The interest from the date of death until closure will be paid at the Post Office Savings Account rate.

Early account closure is permitted only after 5 years from the date of opening, and only in specific situations, such as: a life-threatening illness of the account holder, the death of the guardian operating the account, or if continuing the account causes significant hardship to the account holder.

Key Points of Sukanya Samriddhi Yojana

• The current interest rate is 8.2% per annum.
• Interest is calculated monthly based on the lowest balance between the 5th and last day of the month and is credited annually.
• The interest earned is entirely tax-free under the Income Tax Act.

**SSY Calculator:** If you contribute the maximum of ₹1.5 lakh annually for 15 years, your total investment would be ₹22.5 lakh. At maturity after 21 years, the estimated final amount would be approximately ₹71.82 lakh.

Is SSY the Right Choice?

Experts suggest that while SSY provides government-backed, tax-exempt returns, other investment options might offer superior returns. Tax-saving equity mutual funds and the National Pension System (NPS) are expected to yield better returns over such a long period, according to some financial advisors. Prableen Bajpai, Founder of FinFix, considers the Sukanya Samriddhi Yojana a "wonderful product" within the fixed-income category. She suggests that it's a preferred investment option for a girl child's future, especially considering the interest rate difference compared to the Public Provident Fund (PPF). That said, the reality is a bit more complicated. she emphasizes the importance of starting early, noting that the 21-year maturity period may limit liquidity for education expenses. She also advises against relying solely on SSY, as other investment avenues may provide better returns.

SSY vs. Other Investments

Mohit Gang, Co-Founder & CEO of Moneyfront, states that "Sukanya Samriddhi Yojana is a very good fixed‑income, tax‑efficient product for a girl child, but cannot necessarily be a 'no-brainer' because long‑term goals like education/marriage usually need an equity component to beat inflation meaningfully.” Gang suggests that combining the Sukanya Samriddhi Yojana with an equity component in a portfolio could be more beneficial in the long run.

**What are the advantages of SSY?**

• It's a government‑backed scheme, making it a risk‑free investment.
• The interest rate is closely linked to G‑sec yields.
• It promotes investment discipline through its lock‑in period and specific purpose, preventing premature withdrawals.

**What are the disadvantages?**

• It's purely a fixed‑income instrument.
• For a 15–20 year goal, the expected returns, considering inflation, could be less than a well‑constructed equity portfolio.
• The government reviews the rates quarterly, which means they can decrease, affecting the maturity value.

SSY Alternatives

• Equity Mutual Funds:** According to Mohit Gang, a portfolio combining SSY with equity mutual funds could generate much better returns over the long term.
• PPF:** The Public Provident Fund (PPF) offers a lower return (currently 7.1%) but has the same tax benefits as SSY, with a 15-year lock-in period, making it relatively more flexible.
• Balanced/Aggressive Hybrid Funds:** For investors seeking a safety net alongside equity, hybrid equity funds can be a suitable option.

Rohit Shah, a Certified Financial Planner and Founder of Getting You Rich, highlights that while Sukanya Samriddhi Yojana provides safe, tax-free returns, its lock-in period is long, and the returns are lower compared to other investment options. He notes that the government's backing ensures complete security for the investment, making it ideal for parents seeking guaranteed safety for their daughter's future. That said, the reality is a bit more complicated. he cautions that the investment is locked in for 18-21 years, making it inaccessible for emergencies. He also points out that the 8.2% return may be lower than alternative options like equity mutual funds, which could generate upwards of 11-12% for those with a suitable risk appetite. Over 21 years, this difference can be substantial. Rising education costs may mean SSY alone is not enough to cover future expenses. Additionally, SSY accounts can only be opened for girls under 10, and the increasing adoption of the new income tax regime reduces the appeal of Section 80C savings like SSY.